ENGLEWOOD CLIFFS, N.J., Oct. 24, 2019 (GLOBE NEWSWIRE) -- ConnectOne Bancorp, Inc. (Nasdaq: CNOB), parent company of ConnectOne Bank, today reported net income of $21.7 million for the third quarter of 2019 compared with $19.3 million for the second quarter of 2019 and $19.9 million for the third quarter of 2018. Diluted earnings per share were $0.61 for the third quarter of 2019 compared with $0.57 in the second quarter of 2019 and $0.61 in the third quarter of 2018.
Adjusted net income amounted to $21.0 million, or $0.60 per diluted share, for the third quarter of 2019; $20.2 million, or $0.57 per diluted share, for the second quarter of 2019; and $18.6 million, or $0.58 per diluted share, for the third quarter of 2018. Adjusted net income excludes $0.1 million, $0.3 million, and $0.3 million in after-tax merger-related expenses for the third quarter of 2019, second quarter of 2019 and third quarter of 2018, respectively. In addition, adjusted net income excludes $0.9 million in after-tax FDIC small bank assessment credits for the third quarter 2019. Adjusted net income for the second quarter 2019 also excludes an after-tax $0.7 million charge on the prepayment of higher-cost borrowings. See supplemental tables for a complete reconciliation of GAAP earnings to adjusted earnings.
Frank Sorrentino, ConnectOne’s Chairman and Chief Executive Officer stated, “We are extremely pleased with our third quarter results, highlighted by record quarterly earnings, meaningful margin expansion and increases in noninterest income, as we continued to drive value during a challenging interest rate and operating environment. We once again delivered solid deposit and loan growth and maintained our strong performance metrics. Average total deposits increased sequentially by $174 million, or 15.4%, on an annualized basis; while average total loans increased by $122 million, or 9.7%, on an annualized basis. Our net interest margin widened by approximately 15 basis points, both on a GAAP and on an adjusted basis, while most of the industry experienced margin contraction. The widening resulted from core growth, improved balance sheet mix and pricing discipline. Return on assets exceeded 1.4% and return on tangible common equity was 16%. Meanwhile, our efficiency ratio remained among the best in the industry at 41.1% and tangible book value per share increased by more than 50 cents during the quarter to $15.60. Tangible book value per share has increased by 12.4% over the past year.”
Mr. Sorrentino added, “In addition to our record third quarter financial performance, we are pleased with the groundwork we're laying for the continued long-term success of the business. Our outlook for the remainder of 2019 and 2020 is extremely positive and we remain well-positioned to capitalize on meaningful growth opportunities throughout our New York and New Jersey metropolitan target market. I’m equally excited about our recently announced in-market acquisition of Bancorp of New Jersey, Inc. This is a financially savvy, accretive acquisition with strong economics to enhance our powerful franchise. Given its commercial business focus, overlapping geographic footprint, shared client base and the considerable synergies that are expected, we believe Bancorp of New Jersey is a natural fit for ConnectOne and the transaction remains on target to close in early 2020.”
Operating Results
Fully taxable equivalent net interest income for the third quarter of 2019 was $48.9 million, an increase of $2.8 million, or 6.1%, from the sequential second quarter of 2019, resulting primarily from a 14 basis-point widening of the net interest margin to 3.44% from 3.30%. Included in net interest income were purchase accounting adjustments of $1.6 million during the third quarter of 2019 and $1.7 million during the second quarter of 2019. Excluding these purchase accounting adjustments, the adjusted net interest margin was 3.33% for the third quarter of 2019 and 3.17% for the second quarter of 2019. The net interest margin widened primarily due to improvements on both sides of the balance sheet. Loan portfolio yields increased due to an improved loan mix and higher spreads on new business, while funding costs declined due to solid growth in core deposits coupled with lower rates. In addition, an increase in prepayment penalties, largely a result of early payoffs of commercial real estate loans secured by multifamily properties, contributed approximately 4 basis-points to the increase. Noninterest income increased to $2.1 million in the third quarter of 2019 from $1.9 million in the second quarter of 2019 and $1.3 million in the third quarter of 2018. Included in noninterest income for the third quarter of 2019 were net losses on sale of securities available-for-sale of $0.3 million. Excluding these losses, noninterest income increased $0.4 million from the sequential quarter. This increase was primarily attributable to increases in gains on sale of loans held-for-sale of $0.2 million, deposit loan and other income of $0.2 million and bank owned life insurance of $0.1 million, offset by $0.1 million decrease in net gains on equity securities. At September 30, 2019 approximately $33 million in loans were classified as held-for-sale. Management expects to sell these loans and record a gain in the fourth quarter. Management expects to continue to originate a moderate amount of loans for sale as long as market conditions remain favorable.
Noninterest expenses totaled $20.4 million for third quarter of 2019, $21.6 million for the second quarter of 2019 and $18.1 million for the third quarter of 2018. Included in noninterest expenses for the third and second quarters of 2019 were merger-related expenses of $0.2 million and $0.3 million, respectively. The current quarter included an FDIC assessment credit of $1.3 million while the second quarter of 2019 included a $1.0 million in loss on extinguishment of debt. Excluding merger-related expenses, loss on extinguishment of debt, and the effect of the aforementioned FDIC credit, noninterest expenses increased $1.2 million when compared to the second quarter of 2019. The increase was primarily attributable to increases in compensation expenses related to a larger staff and higher cash and equity-based compensation accruals.
Income tax expense was $6.4 million for the third quarter of 2019, $5.5 million for the second quarter of 2019 and $2.1 million for the third quarter of 2019. The effective tax rates for the third quarter of 2019, first quarter of 2019 and third quarter of 2018 were 22.9%, 22.2% and 9.6%, respectively. Included in income tax expense for the third quarter of 2018 were benefits of $1.4 million resulting from Federal and NJ deferred tax asset adjustments. The increase in the effective tax rate for the current quarter from the sequential quarter was primarily due to a higher proportion of taxable income.
Asset Quality
The provision for loan losses was $2.0 million for the third quarter of 2019, $1.1 million for the second quarter of 2019 and $1.1 million for the third quarter of 2018. The increase in the provision for loan losses was primarily attributable to an increase in charge-offs, which totaled $0.9 million for the quarter.
Nonperforming assets, which includes nonaccrual loans and other real estate owned, were $52.2 million at September 30, 2019, $51.9 million at December 31, 2018 and $53.0 million at September 30, 2018. Included in nonperforming assets were taxi medallion loans totaling $25.8 million at September 30, 2019, $28.0 million at December 31, 2018 and $28.5 million at September 30, 2018. Nonperforming assets (including taxi medallion loans) as a percentage of total assets were 0.85% at September 30, 2019, 0.95% at December 31, 2018 and 0.99% at September 30, 2018. Excluding the taxi medallion loans, nonaccrual loans were $25.5 million at September 30, 2019, $23.8 million at December 31, 2018 and $24.5 million at September 30, 2018, representing a ratio of nonaccrual loans (excluding taxi medallion loans) to loans receivable of 0.50%, 0.53% and 0.55%, respectively. The annualized net loan charge-off (recoveries) ratio was 0.07% for the third quarter of 2019, 0.08% for the fourth quarter of 2018 and (0.01)% for the third quarter of 2018. The allowance for loan losses represented 0.76%, 0.77%, and 0.78% of loans receivable as of September 30, 2019, December 31, 2018 and September 30, 2018, respectively. The allowance for loan losses as a percentage of nonaccrual loans, excluding taxi medallion loans, was 151.9% as of September 30, 2019, 146.8% as of December 31, 2018 and 141.6% as of September 30, 2018.
Selected Balance Sheet Items
At September 30, 2019, the balance sheet reflected the acquisition of Greater Hudson Bank. The Company’s total assets were $6.2 billion, an increase of $699 million from December 31, 2018. Total loans were $5.1 billion, an increase of $602 million from December 31, 2018. Included in total loans were loans held-for-sale of $33.2 million. The Company’s stockholders’ equity was $720 million at September 30, 2019, an increase of $106 million from December 31, 2018. The increase in stockholders’ equity was primarily attributable to the acquisition of Greater Hudson Bank, which increased capital by $56 million, as well as increases in retained earnings of $43 million. As of September 30, 2019, the Company’s tangible common equity ratio and tangible book value per share were 9.21% and $15.60, respectively. As of December 31, 2018, the tangible common equity ratio and tangible book value per share were 8.77% and $14.42, respectively. Tangible book value per share increased $0.59, or 3.9%, from the sequential quarter. Total goodwill and other intangible assets were approximately $168 million as of September 30, 2019 and $148 million and December 31, 2018.
Use of Non-GAAP Financial Measures
In addition to the results presented in accordance with Generally Accepted Accounting Principles ("GAAP"), ConnectOne routinely supplements its evaluation with an analysis of certain non-GAAP/adjusted financial measures including an adjusted net income available to common shareholders. ConnectOne believes these non-GAAP financial measures, in addition to the related GAAP measures, provide meaningful information to investors in understanding our operating performance and trends. These non-GAAP measures have inherent limitations and are not required to be uniformly applied and are not audited. They should not be considered in isolation or as a substitute for an analysis of results reported under GAAP. These non-GAAP measures may not be comparable to similarly titled measures reported by other companies. Reconciliations of non-GAAP/adjusted financial measures disclosed in this earnings release to the comparable GAAP measures are provided in the accompanying tables.
About ConnectOne Bancorp, Inc.
ConnectOne Bancorp, Inc., through its subsidiary, ConnectOne Bank offers a full suite of both commercial and consumer banking and lending products and services through its 28 banking offices located in New York and New Jersey. ConnectOne Bancorp, Inc. is traded on the Nasdaq Global Market under the trading symbol "CNOB," and information about ConnectOne may be found at https://www.connectonebank.com.
